Contracts Notes - semester 1 first year of contract law PDF

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semester 1 first year of contract law ...

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Contract Notes Chapter 1 – The nature of contract Week 1: Introduction to Contract Law ● The Idea of Contract ○ A contract is commonly defined as an agreement or set of promises that the law will enforce (i.e. for breach of which the law will provide a remedy)' B Coote, 'The Essence of Contract Law – Part 1' (1988) 1 JCL 9  1, 94-97 ○ Classical understanding of contract – a contract an expression of the joint will of parties engaged in a transaction. On this view, contractual obligations are voluntarily assumed and sharply distinguishable from obligations imposed by the law of tort. ■ The role of law is to facilitate the freedom of the parties to create their own private law. ○ Contracts can give or take away rights: Fine prints ●

All contracts  are agreements, but not all agreements are contracts

Elements of a contract ● Agreement (offer/ acceptance) ● Consideration (‘price’ paid for the promise) ● Intention to create legal relations ● Certainty and completeness] Examples of enforceable promises or agreements? ● ● ● ● ● ●

Promises where some ritual has been performed? Eg., Deed: Yes Promises that are written down? Yes Promises that have been relied upon? No Promises that were seriously intended? Yes Gift? No Promises that have been bargained for? Yes

Unilateral contract: one party promises to do something (usually pay a sum of money) in return for an act of another party, as opposed to a promise. ● ●

Example: Reward case, where ,A, promises a reward to anyone who will find his lost dog. The essence of a unilateral contract is that only one party, A, is bound to do anything. No one is bound to search for the lost dog, but if B, having seen the offer, finds the dog and returns it, he is entitled to the reward.

Bilateral Contract: A promise by one party is exchanged or returned by another promise by another party. The exchange of promises is enough to render them both enforceable. ● Example: A contract for the sale of goods, the buyer promises to pay the price and the seller promises to deliver the goods.

Week 2: Contract Formation: Offer - AGREEMENT – OFFER Agreement: conventional/traditional approach is to ask whether there has been an offer and a valid acceptance Offer: Definite promise to be bound / willingness to be committed on terms stated - see e.g. Gibson v Manchester City Council; Carlill v Carbolic; Pharmaceutical Society v Boots; MacRobertson Miller; Mobil v Wellcome ●

‘promisee objectivity’ or Objective Approach: ○ Court not concerned with what each party subjectively intended ○ Parties’ intentions are judged by outward manifestations, what they have ■ Said ■ Written ■ Done ○ And with what a reasonable person would conclude from those words and actions

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Conventional approach: looking for offer and acceptance ○ Cases: Carlill v Carbolic; Gibson v Manchester City Council) ○ Contract is formed at the time/place acceptance is communicated to the offeror ■ Case: T  aylor v Laird

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An offer is a statement by one party of a willingness to enter into a contract on stated terms. Classical contract theory – offer and acceptance formula identifies a 'magic moment of formation' - when parties are 'ad idem' – the joining of individual wills to create binding obligations.

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Offer and acceptance help determine: ○ whether a  n agreement was reached at all ○ when t he agreement was reached ○ where t he agreement was made ○ the express content (i.e. terms) of the agreement / Contract

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2 aspects to an offer: 1. It must be clear from words &/or conduct of the promisor that the promisor is willing to be bound to his/her promise without further negotiation and that a binding agreement would be made upon acceptance  ibson v MCC; Carlill; Pharmaceutical Society v Boots ○ Case: G 2. propose an exchange -- a commitment to carry out the promise in return for something specified, the ‘price’ for the promise: ○ may be a completed act by the promisee or ○ a return promise from the promisee to do or not do something. ■ Case: Carlill; Australian Woollen Mills v Cth.

➔ Tested objectively: How a reasonable (or ordinary) person, in the position of the person to whom the communication is made (i.e. the offeree), would construe it ■ Case: Carlill ●

An offer must propose an exchange and not be: (common where a unilateral contract is alleged) ■ a statement of policy ■ a conditional gift ● Case: Carlill v Carbolic; Australian Woollen Mills v Cth ○

Need for a relationship of 'quid pro quo' between the offer and the consideration

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Quid pro quo: a favour or advantage granted in return for something.

An offer must demonstrate a willingness / commitment to be bound. Must be distinguished from: ○ preliminary negotiations/ supply of information ○ A mere ‘puff’ ○ an invitation to treat

Examples: 1. Case: Harvey v Facey [1893] AC 552 ● Potential purchaser sends telegram: 'Will you sell us Bumper Hall Pen? Telegraph lowest cash price' ● Prospective vendor replies: 'Lowest cash price for Bumper Hall Pen £900' ● Purchaser telegraphs: 'Your offer to sell Bumper Hall Pen is accepted' 2. Case: Gibson v Manchester City Council [1979] 1 WLR 294, 297 ● “may be prepared to sell”: ‘was but a step in the negotiations 3. Case: Carlill v Carbolic Smoke Ball Co [1893] ● '£100 reward will be paid by Carbolic Smoke Ball Company to any person who contracts.. influenza... after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. £1,000 is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter.' ○ Carlill tried to claim “mere puff” (exaggerated sales hype) 4. Case: MacRobertson Miller Airline Services v Commissioner of State Taxation ● Invitation to Treat: An invitation to treat is an expression of interest in transacting (business, a sale, etc) ●

Distinction between an offer and an invitation to treat is intention

Did the maker of the statement intend to be bound by an acceptance of his terms without further negotiation or did he only intend his statement to be part of the continuing negotiation process? ■ Case: G  ibson v Manchester City Council; Storer v Manchester City Council A supply of information is a statement that merely provides information to the other party and is not intended to be acted upon ■ Case: H  arvey v Facey Common types of invitations to treat: ○ Display of Goods: ■ Case: P  harmaceutical Society v Boots Cash Chemists ○ Advertisements: ■ Case: C  arlill v Carbolic Smoke Ball ○ Ticket Cases:  acRobertson Miller Airline Services v Commissioner of State ■ Case: M Taxation ○

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Pharmaceutical Society v Boots Cash Chemists [ 1953] 1 QB 401 ○ Issue: The display of goods on a shelf (with a price affixed) at a self service pharmacy a contractual is mere invitation to treat (an invitation to others to enter into negotiations) not an offer

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MacRobertson Miller Airline Services v Commissioner of State Taxation ○ The need to ascertain when and where the contact has been formed, for purposes of jurisdiction or whether written  conditions are a part of the contract. ○ Written conditions are viewed by the other party only after he has bought the ticket. ○

Defies usual offer and acceptance rules: assumption that the contract is made when the ticket is bought, entails that the conditions are not a part of the contract

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View held: Ticket only represents an offer made to the passenger, which he accepts by presenting himself for travel.

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No contract is formed by the purchase of the ticket alone.

Cases covered: ● ● ● ● ●

Gibson v Manchester City Council ( CB p  42) Carlill v Carbolic Smoke Ball Co ( CB p  45) MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) ( CB p50) Pharmaceutical Society of Great Britain v Boots Cash Chemists ( CB p  54) Australian Woollen Mills Pty Ltd v Commonwealth ( CB p 102) 

Week 3: Contract Formation: Termination of Offer An offer may have ceased to be effective at the time of a purported acceptance because it has: A. been revoked (i.e.withdrawn); ● An offer will cease to be effective where it has been revoked (withdrawn) ○ General rule: an offer may be revoked at any time prior to acceptance. Unless an option is created for consideration ($$) ■ Case: Goldsbrough Mort v Quinn ● Rule: Revocation is effective only when it has been communicated to the offeree ■ Case: Stevenson Jaques v McLean) ○ Revocation may be communicated by a third party ■ Case: Dickenson v Dodds ●

An offer can be revoked within unilateral contract ( where the promisor makes a promise in return for the doing of an act), once the promisee has begun to perform the required act (d  oes not constitute acceptance). Revocation can occur as long as performance has occurred but hasn’t been completed. ■ Case: Mobile ○

The general rule is that an offer cannot be revoked if the act made in exchange for it has been partly performed.

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There is an implied condition in the agreement that the offer will not be withdrawn once the Offeree begins to perform.

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general rule was not followed in Mobil Oil Australia Ltd v Wellcome International Pty Ltd, “An offer made in return for performance of an act is, like any other offer, revocable at any time.”

➔ Such an offer can only be secured against revocation when there is an implied contract not to revoke, or an estoppel. ●

Revocation does not require any formal language and may be inferred (Implied) from conduct. 3rd party or direct communication

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‘Option’: Offeree supplies consideration (ie, give something of value)  to ensure the offer is not withdrawn for a period of time. ○ Parties are split into Grantor (Promisor) and Option Holder (Promisee) ○

The offer made by the Grantor cannot be revoked for the amount of time specified, and the Option Holder is entitled to accept it or not.

B. been rejected / Counter offer; ● Rejection of an offer by the offeree extinguishes (i.e. terminates) the offer ○ Ca  se: Tinn v Hoffman ( 1873) 29 LT 271, 278 ● Counter offer: The making of a counter offer by the offeree operates as a rejection of the original offer and extinguishes the original offer ○ Case: H  yde v Wrench ( 1840) 49 ER 132

➔ Request for information: A mere request for information w  ill not operate as a rejection ○ Case: S  tevenson Jaques v McLean ● An inquiry is when the buyer has not manifested an intention to reject the offer, merely to see whether there is room for negotiation. Counter offer: The making of a counter offer by the offeree operates as a rejection of the original offer and extinguishes the original offer  yde v Wrench ( 1840) 49 ER 132 ○ Case: H ➔ Request for information: Buyer  has not manifested an intention to reject the offer, merely requesting for information / negotiation. Will not operate as a rejection  tevenson Jaques v McLean ○ Case: S

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C. Lapsed. ● If an offer is stated to be open for a specified period, it will lapse on expiry of time period ○ If no time is specified, the offer can also lapse after a ‘reasonable amount of time’ has passed. ■ ○

Case: M  anchester Diocesan Council [1970]

What constitutes ‘reasonable’ time is subjective to circumstances and subject matter of the offer.

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Usually, verbal offers would lapse more quickly than formal or written offers.

Death of party: ●

The death of one of the party often causes the termination of the offer

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Offeree cannot accept an offer after learning that the Offeror has died. ■

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Case: F  ong v Cilli

Offeree might be able to accept an offer even if the Offeror had died, if his acceptance was communicated before he had found out of the death.

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Death of the Option Holder does not terminate the offer. Option may be exercised by the representatives of his estate.

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The offer will be terminated if the offer was ‘personal’ to the Option Holder.

Failure of condition: ●

If an offer is stated to be subject to a condition, it lapses if the condition is not satisfied. ○

Example: e.g. I offer to purchase your house for $900K subject to a satisfactory pest inspection ■

Case: F  inancings Ltd v Stimson

➔ Note that offers may be construed as being subject to implied conditions (e.g. perishables)

Cases covered: ● ● ● ●

Goldsbrough Mort & Co Ltd v Quinn ( CB p  56) Mobil Oil Australia Ltd v Wellcome International Pty Ltd ( CB p  58) Dickinson v Dodds ( 1876) 2 ChD 463, 471-474 Stevenson Jaques v McLean ( 1880) 5 QBD 346, 349-352

Week 4: Contract Formation: Acceptance ●

2 approaches to determining if the parties have reached “agreement” a. Conventional (traditional) approach b. Alternative approach

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An unqualified assent to the terms of the offer ■ Case: B  rambles Holdings v BCC; Butler Machine Tool ○ The Objective approach: Considers only the outward manifestations rather than actual consensus. ■

Case: Taylor v Johnson (1983) 151 CLR 422(Principles p 74); Empirnall v Machon Paull; Brambles v BCC

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External manifestations of assent / agreement eg. ‘Signature Rule’: signature = acceptance, even if you didn’t read it ●

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C  strange v Graucob  ase: E

The Subjective approach: Considers whether there was a real understanding between the parties. ■

“meeting of the minds” ●

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Case: Dickinson v Dodds

Acceptance Through Time and Place: ○ Time contract made – ordinarily is the time when offeror receives communication of acceptance Brinkibon v Stahag Stahl ○ Place contract made – ordinarily is the place where the offeror receives communication of acceptance Brinkibon v Stahag St

● acceptance - governing principles: 1. Nexus: A  cceptance must be of and in response to the offer ● ‘Agreement’ implies the joint declaration of will of the parties ● Nexus issue more commonly arises in u  nilateral contracts ■ Case: R v Clarke; Cth v Australian Woollen Mills ● In unilateral contracts: ○ The offeree must be aware of the offer ■ Case: R v Clarke Isaacs, ACJ

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The offeree must perform the act in response to the offer ■ Case: R v Clarke Isaacs

2. Communication: Acceptance must be communicated to the offeror. ■ Case: Carlill ● General rule: acceptance is effective to form an agreement only when it has been communicated to the offeror  arlill v Carbolic ■ Case: C ● acceptance is communicated, the offeror is free to withdraw i ts offer ■ Case: C  arlill v Carbolic ● Two issues arise: ○ What will amount to “communication” of acceptance? a. Silence cannot infer acceptance of an offer. ■ Case: Felthouse v Bindley “If I hear no more” b. Acceptance can be inferred from the conduct of an offeree. ■ Case: Empirnall v Machon Paull (Work being conducted in accordance with the terms) ● Are there any exceptions or qualifications t o the general rule that acceptance must be communicated t o conclude a contract? ● Exception- External manifestation of assent to the offer. ■ Case: Empirnall v Machon Paull a. Waiver: ○ the offeror expressly or by implication waives the need for the offeree to communicate its acceptance to the offeror i. Case: C  arlill, reward cases b. Prescribed mode of acceptance: ○

The offeror may stipulate a specific manner in which the offer is to be accepted. ■ Case: Manchester Diocesan, Crown v Clarke, Carlill

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If the offeror does not insist that it is the sole means of acceptance, then any mode not less advantageous to the offeror will be valid. ■ Case:  M  anchester Diocesan v Commercial

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c. Postal acceptance rule: Acceptance is deemed to be effective at the time and place the letter of acceptance is posted ■ Case: Henthorn v Fraser does not extend to telecommunications d. Electronic communications – do they fall within the ‘general rule’? e. Electronic Transactions Act 2000 (NSW)

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Information systems expressly designated to receiving acceptance

In this case, acceptance is effectively communicated once it enters the information system ➔ a general email inbox on a letterhead does not constitute an expressly designated information system. ○ Information systems which are not expressly designated for such purposes. ■ In this case, acceptance is effectively communicated once it comes to the attention of the Offeror. ■

3. Correspondence:  Acceptance must correspond with the offer. ● Case: Butler Machine Tool ●

Acceptance must amount to an unequivocal statement, or form of conduct, by the offeree, indicating assent to the offer ■ Case: Brambles v Bathurst City Council ○ To attempt to change terms or add terms, it can be seen as rejection, counter- offer, and negotiations ■ Case: Hyde v Wrench; Stevenson Jaques v McLean; Butler Machine Tool; Brambles v Bathurst CC ○ Battle of forms – where both parties use their own standard printed forms and seek to impose their terms on the other party ■ Case: Butler Machine Tool ○ two approaches were identified: 1. Conflict approach: ○

Requires the courts to determine which set of terms has prevailed.

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Either by who ‘had the last shot’ (the last say), or the party who is most persistent in insisting that their own set of terms should prevail.

2. Synthesized approach: ○

Make up a contract from consistent terms, along with terms from one set that appeared to be accepted by the other party.

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Any gaps in the synthesized contract could be filled with terms implied by the court

Cases covered: ● ● ● ● ● ●

The Crown v Clarke ( CB p  69) Felthouse v Bindley ( CB p  72) Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd ( CB p  73) Brambles Holdings Ltd v Bathurst City Council ( CB p  75) Brinkibon Ltd v Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH ( CB p  91) Electronic Transactions Act 2000 (NSW) s s 5; 13-14 (CB p  93)

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Guide to Enactment of UNICITRAL Model Law on Electronic Commerce ( CB p  96) Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd ( CB p  97) Henthorn v Fraser [ 1892] 2 Ch 27

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Manchester Diocesan Council for Education v Commercial & General Investments [1970] 1 WLR 241, 245-246

Week 5: Contract Formation: Consideration (Part 1) : ●

Two elements to consideration: 1. An exchange: promise gives ‘something’ in return for the promisor’s promise. 2. That ‘something’ given by the promisee must be regarded as ‘good in law’ or ‘sufficient’ or ‘something of value in the eye of the law’.

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Exchange aspect of consideration: ○ Need for a quid pro quo (something for something, this for that) relationship between the offer and consideration; ➔ A reciprocal exchange: the promisor asks for something in exchange for its promise. ◆ Case: A  ustralian Woollen Mills v Cth ➔ Executory consideration: That which remains to be carried into effect ➔ Executed consideration: Has been effected, or performed, has been paid for after ct performed. ●

A conditional gift is a promise to give something if the Promisee performs a specific act.

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